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Eye on “Outliers”

This week I was travelling up to Toronto for meetings on a new business opportunity. We are looking at investing in a Major Junior hockey team. As travelling always does, this trip also gave me some quiet time to read. I picked up Malcom Gladwell’s new book, “Outliers”, and managed to plow through it over the last few days and wanted to share some of my thoughts about Gladwell’s ideas. Ironically, Gladwell also uses Canadian Major Junior Hockey to highlight one of his early and key points in the book.

As many of you know, Gladwell is also the author of “The Tipping Point” and “Blink”, which were both New York Times #1 best sellers. Gladwell was the first author, on a mass scale, to take social science research, largely in sociology and psychology, to explain events and phenomena in real life. The Tipping Point explains how seemingly small events can have massive sociological implications. Blink explains how the subconscious mind allows humans to make very accurate snap decisions. Outliers deals with trying to determine what makes some people incredibly successful and others, with seemingly comparable natural talents, much less so.

A good friend of mine, who is a PH.D student at one of the top political science programs in the country, recently emailed me to say she really enjoyed reading our morning note, The Early Look, but she sometimes thought we used too many hockey analogies, which detracted from the seriousness of the discussion. Keith’s use of hockey analogies, and the rationale of taking personal experiences and applying those lessons to investing and managing a business, are actually a topic for a future post, but needless to say I was pleasantly surprised that Gladwell’s book opened with a hockey case study given my PH.D friend’s comments. Warren Buffett cited Wayne Gretzky in his latest NYT Op-Ed piece. Maybe we hockey guys are onto something…

Outliers begins by analyzing the Memorial Cup, which is the Championship in Canadian hockey for amateurs under the age of 21. In theory, the best young hockey players in Canada, which is arguably the best hockey playing country in the world, will be competing for this championship and, ultimately, it comes down to one game between the best 18, 19, and 20 year olds in the country. Gladwell looked at this and asked the very simple question, what allows any specific Canadian kid to climb to the top of the amateur hockey in his country? And, can we define a factor or group of factors that enable some kids to outperform and reach this level?

Hockey experts would certainly theorize on many reasons as to why certain kids excel at the game and others do not. Inevitably, the rationale is always based on some intrinsic talent. Depending on who you ask, the intrinsic talent that enables certain hockey players to excel and others to underperform may be based on a multitude of factors, which could include work ethic, competiveness, “love of the game”, parenting, natural athleticism, and so on. Gladwell’s findings were actually contrary to any commonly held belief: the best predictor of success was actually birth month.

In fact, on the roster of the Medicine Hat Tigers, a finalist for the 2007 Memorial Cup, 13 of the 25 players on the roster were born in the months of January, February, and March. Obviously, having more than 50% of the players being born in a three month period for an elite hockey team is certainly an outlier versus the normal distributions of birthdays in the general population. This could be considered anecdotal if it weren’t for the prior work of Canadian psychologist Roger Barnsley.

As Gladwelll tells it, Barnsley was at Lethbridge Broncos (also a major junior hockey team) game in Southern Alberta in the mid-1980s with his wife and two kids when his wife asked him, “Roger, do you know when these young men were born?”. Barnsely’s quick response was to say their birth years, but his wife’s point quickly jumped out at him, many of the players were born in the first three months of the year. This observation led Barnsley to do a broad study of all elite leagues in Canada across many years and the conclusion was very simply that, “in any elite group of hockey players – the very best of the best – 40 percent of the players will have been born between January and March, 30 percent between April and June, 20 percent between July and September, and 10 percent between October and December.” This is an effect so powerful that the data does not even have to be analyzed, just observed.

The obvious question is, why does this phenomenon exist? The answer is actually quite simple. The cutoff date for hockey age groups in Canada is January 1st. As a result, at a young age, when a year can make a big difference in physiological development, a seven year old that is born on January 1, 2001 will be competing against kids that are up to a year younger than him , which can lead to material outperformance based on natural development of strength and motor skills. That is, the kid born on January 1, 2001 will just be much more naturally developed, which provides a competitive advantage.

In Canada, and many countries (and in many sports for that matter), the hockey system quickly filters off the better players at young age to play on travel teams or all-star teams. In joining these travel teams, the young players ultimately play more hockey, both practices and games, and against better competition. Thus, the kids that were older and more developed received another opportunity, which is that they got to play more hockey and against better competition.

Obviously, playing more against better players will lead to even further outperformance. As players move up the hockey echelon, this effect becomes so noteworthy that, as outlined above, a full 70 percent of elite hockey players are born in the first six months of the year! Therefore, if you are a Canadian parent and you want to give your kids an advantage in becoming a great hockey player, make sure they are born in the early part of the year.

Hockey is only one, although an incredibly statistically significant example, of the advantage of birth month. And while for me, a hopeful future father of NHL hockey players, an important one, the more valuable observation of this phenomenon probably relates to education.

As Gladwell points out, many parents often debate as to whether to enroll their students in kindergarten if the child is born at the end of the calendar year, which would make them one of the younger kids in class. Ultimately, many parents that actually enroll their children, rather than hold them back, likely believe that their kids will overcome the early disadvantage of starting school when they are less physically and mentally developed that their peers. In fact, this disadvantage only seems to expand with time.

Kelly Bedard and Elizabeth Dhuey, two economists that Gladwell cites, show this continued outperformance by older kids in two specific studies. The first study looks at the relationship between scores on an international test called Trends in International Mathematics and Science Study. Their analysis found that “among fourth graders, the oldest children scored between four and twelve percentile points better than the youngest children.” Bedard and Dhuey then looked at colleges in the U.S. and found that the “relatively youngest group in the class are under represented by about 11.6%”. Dhuey probably summarized this research best when she said: “I mean, it’s ridiculous. It’s outlandish that our arbitrary choice of cut off dates is causing these long last effects, and no one seems to care about them.”

Gladwell has been widely criticized for not applying academic or scientific process to his books and that he picks and chooses his research to suit his conclusions, but one thing we have to admire about Gladwell and his work - he asks the questions. And that is the start of any research process, whether it be an investment idea or physics problem. Does he definitely prove that exceptional achievement has much more to do with circumstance than innate talent? Maybe not. But what he does do is prove that parenting, patronage, community, and circumstance certainly play a major role in future success.

By the way, Keith McCullough was born on January 5th, and I was born on January 25th. I need to check the birth dates on our ECAC Championship hockey team’s roster!

Daryl Jones
Managing Director

111 Whitney Avenue
New Haven, CT 06